There are many perks to having a Singapore-based business, and its lucrative tax incentives are definitely atop the list. Thanks to the country’s Income Tax Act, your business might be granted an industry-specific tax incentive. For a fee, Timcole can not only assist you with company incorporation but also with accounting and taxation to help you claim the incentive.
Singapore’s low headline corporate tax rate of 17% has helped strengthen its position in the international business space. Furthermore, small and medium businesses can benefit from a comprehensive package of tax exemption and industry-specific tax incentives offered by the state.
In this article, you can get an overview of how the tax incentives in Singapore vary across different industries. For personal tax saving guide, click here.
Read more on the overview of Singapore taxation or taxation of international executives in Singapore.
Tax Incentives for Financial Institutions in Singapore
Singapore businesses in the financial services industry can benefit from a surfeit of tax incentives. Some of the industry-specific tax incentive schemes are as mentioned below:
Tax Benefits on Trading Income
Financial institutions in Singapore tax benefits on trading income. For instance, income and capital gains are often tax exempted for financial service companies in Singapore, making this sector a very lucrative one for foreign investors. This incentive applies to trade investments even when done on behalf of non-resident clients.
Concessionary Tax Rates
Moreover, concessionary tax rates are applied to profits accrued by companies in this industry. This is applicable to profit earned on a wide range of activities – from billed customers to rendering investment services.
Withdrawing Tax Exemption for OTC Derivatives
All financial service companies licensed under the Finance Companies Act may receive a withholding tax exemption for payments made to non-Singaporean entities and over-the-counter (OTC) financial derivatives payments made before March 2021.
Tax Incentives for Banks in Singapore
Even though it is set to expire in March 2021, banks approved under the MAS Act or licensed under the Banking Act in Singapore can benefit from the withholding tax exemption on qualifying business-related payments such as interests made to non-residents. The withholding tax exemption was extended to permanent establishments in Budget 2012.
Tax Incentives for Singapore Fund Management Companies
Singapore is a popular location in Asia for fund management companies. Its gainful tax benefits is a key contributor to the spurring growth of this industry. Many companies are also drawn to this market because of the relatively short time required to register a city-state fund.
Offshore Funds Tax Exemptions
The state offers tax exemptions for qualified offshore funds managed by Singapore-based fund management companies. This exemption is applicable on specified income from traditional designated investments like shares, securities, stocks, deposits, bonds, and futures contracts. Below is a list of attributes of a qualifying offshore fund:
- The fund is not fully owned by Singapore investors including Singapore residents, corporate entities owned by Singapore residents, and permanent establishments in Singapore owned by non-residents
- It does not have any Singapore presence
- It can only be in the form of trusts, companies, or individual accounts
Below is a few classifications of a qualified investor which provides a clear picture of who is eligible for tax exemptions on offshore funds:
- Individual Investments
- Non-individual and non-resident investors with no business activity apart from the fund management company in Singapore, or possess a Singaporean Permanent Establishment but do not use operational funds obtained in Singapore to invest in the qualifying funds
- Designated Government Entities in Singapore
- A Singapore-resident corporate investor who owns not more than 30% of the qualifying fund (50% if the fund has more than 10 investors)
Onshore Funds Tax Exemptions
According to the Singapore Resident Fund Scheme introduced in 2006, the tax exemption scheme for offshore funds was further extended to onshore funds. Funds constituted in Singapore would qualify for tax exemption if the following criteria were met:
- The fund vehicle is only a company
- The fund must be constituted and administered in Singapore
- The fund must be MAS-approved
The Singapore Resident Fund Scheme has contributed immensely to the growth of the country’s fund management industry. Besides, it lowers tax liability in Singapore treaty network countries where the onshore fund may be invested in.
Concessionary Tax Rates
According to the Financial Sector Incentive Scheme, fund managers can avail a concessionary tax rate of 10% on fee income. The scheme is subject to approval by MSA and some additional conditions. Fund management companies with a minimum of three investment advisory or fund management professionals and a basic income of over S$3,500 monthly are qualified recipients concessionary tax rates.
Tax Incentives for Global Trading Businesses in Singapore
Under the Global Trader Scheme, a qualified global trading company can receive 5 to 10% tax rates for a period of 5 to 10 years on offshore trade income, given that the company meets business turnover and spending goals. Achieving a status of Global Trader is not easy as you require a portrayal of a verified record of accomplishments in terms of international trade, procurement, and transportation of qualifying products.
Exchange-traded commodity and over-the-counter commodity and freight derivative instruments qualify under the GTP scheme. OTC Once approved as a GTP company, you may enjoy numerous perks for up to 5 years. However, as the scheme expires on 31 March 2021, it is advised to get approval as a GTP Structured Commodity Finance or GTP company before the scheme expires.
Tax Incentives for Singapore Shipping and Maritime Industry
The Maritime and Port Authority of Singapore have developed numerous incentive schemes to encourage shipping companies to build and expand their businesses.
Below is a list of Maritime Sector Incentive (MSI) awards for all companies that are involved in international shipping operations, shipping support services, and maritime leasing.
MSI-Approved International Shipping Enterprise Award (MSI-AIS)
The MSI-Approved International Shipping Enterprise Award is an attempt to motivate international ship operators and owners to set up their commercial shipping operations in Singapore by granting them tax exemptions on qualifying income.
The tax benefit can be availed for either a renewable 10 years period or a 5 years non-renewable period. Companies may even graduate to the 10-year scheme upon completion of the 5 years period.
Successful industry players who are inclined to increase shipping operations within the country have a strong global network are qualified recipients of the MSI-AIS award.
MSI– Shipping-Related Support Services Award (MSI-SSS)
The MSI-Shipping-related Support Services Award promotes the growth of companies that provide ancillary shipping services. It also encourages shipping conglomerates to establish their corporate services in Singapore.
MSI-SSS awarded companies may receive a concessionary tax rate of 10% for a five years period on the incremental income from providing related support services like forwarding freight agreement trading, ship agency, shipbroking, ship management, freight logistics, and forwarding services.
To be eligible for this award, applicants must have a concrete business plan related to ancillary shipping services and a good track record. However, eligible companies should apply for the MSI-SSS award before 31 May 2021.
MSI – Maritime Leasing (MSI-ML) Award
MSI-Maritime Leasing Award is given to companies that make Singapore their capital and funding base to pay for their sea containers and vessels. An MSI-ML awarded ship-leasing company, partnership, or business trust can enjoy tax concessions on qualifying leasing income for up to 5 years.
Furthermore, an approved manager of the company will be granted a 10% concessionary tax rate on all qualifying management income. Additionally, The MSI-ML award covers both operating and qualifying finance leases to allow the flexibility to own assets in leasing and chartering options.
Other Tax Incentives
Companies in the maritime industry find it quite easy to be GST compliant. Pleasure and recreational ships for international travel qualify for GST zero-rating, which allows a 10 years period of tax-free income from locations outside Singapore to approved shipping companies with strong global networks and good records.
The 0% GST also applies on all goods such as stores and merchandise provisioned for on-board installation or use and passengers being transported by the ship.
Furthermore, if you make payments to non-residents for using the ships for bareboat operations, voyages, and time charters, you do not have to withhold tax.
Under the Block Transfer Scheme, you can get a withholding tax exemption for loan interest payable on borrowings from an international lender in order to attain a registered Singapore-flagged company.
Certain gains will be qualified for approved ship operators and lessor if the gains come from the following sources:
- Disposal of vessels owned or operated under the MSI-AIS award and registered with the Singapore Registry of Ships
- Income from disposal of foreign vessels
- Selling vessels that the shipping companies would lease back
- Sale of 100% shares in a Special Purpose Company that has title to a vessel registered with SRS or the MSI-AIS awarded vessel
- Disposing of new building contracts and vessels being constructed
Tax incentives for the Tourism Industry in Singapore
According to the tax deduction for inbound tourism promotion, qualified tourism businesses can enjoy a 200% tax deduction annually on the first $100,000 of their expenditure on overseas participation.
The tax deduction for the approved international fair is another promotion which too allows a double tax deduction based on the amount they spend on international trade-oriented exhibitions in Singapore.
Tax Incentives for Event Organizers in Singapore
A 10% concessionary tax rate on the derived income is granted to Singapore companies that organize various events and also bring mega events to Singapore. This tax incentive encourages event management companies to gather international attention and bring foreign currency into Singapore.
Tax Incentives For Singapore-based e-Commerce Businesses
To encourage the e-commerce hub, well-established companies that make money through e-commerce transactions with international parties are granted a lower tax rate of 10% for a 5 years period.
Click here to learn how to start an e-commerce business in Singapore.
Tax Incentives for Approved Venture Companies in Singapore
Any income from approved investments in approved venture companies will qualify for up to 10% tax deduction for a period decided by the Singapore government.
Tax Incentives for Singapore Insurance Companies
Offshore insurance businesses can benefit from the Captive Insurance Tax Incentive Scheme until 31 December 2025, which offers a tax break of 5 years on income. Additionally, the Marine Hull and Liability Insurance Tax Incentive Scheme states that approved marine hull and liability insurance companies do not have to pay taxes on their income for a period of 5 years.
Tax Incentives for Headquarters Activities in Singapore
The Government has two tax incentives in place to encourage more companies to set up their global or regional headquarters in Singapore. Recipients of the Regional Headquarters Award are awarded to companies with their Asia-Pacific headquarters in Singapore with a 5-year concessionary tax rate of 15% instead of 17% on incremental qualifying income from outside Singapore.
Companies that have their international headquarters are qualified to receive the International Headquarters Award, which provides a 5 to 15% concessionary tax rate on incremental income from qualifying activities.
Tax Incentive for Singapore Processing Services Company
For 5 to 10 years, qualifying processing service companies in Singapore need not pay more than 5% tax on income earned from services provided to financial institutions.
Tax Incentive for Product Development, R&D, and Innovation Activities in Singapore
Companies who focus on product development, research and development, and innovation activities can also benefit from a range of tax incentives which can help strengthen their market position.
Development and Expansion Incentive (DEI)
The Development and Expansion incentive offers a confessionary tax rate of 5% to 10% on incremental income derived from qualifying activities. This scheme encourages Singapore-based businesses to migrate to increase operations within the country to buy advanced machinery and equipment, and partake in activities that add more value.
Investment Allowance Scheme
The Investment Allowance Scheme allows qualifying companies to claim capital allowance on plant and equipment for international use. The allowance is provided, in addition to the normal capital allowance, on the company’s percentage of approved fixed capital expenditure.
Pioneer Certificate Incentive
Businesses in the service industry or manufacturing sector who augment the overall industry standards can enjoy up to 15 years tax exemption on income.
Are you paying more than you should be? Learn how to effectively plan taxation for your company in Singapore.
